The study, titled “Governance, Firm Characteristics, and Audit Fees: Panel Evidence from Indonesian Financial Firms,” examined 59 financial firms listed on the Indonesia Stock Exchange, producing 295 firm-year observations. The findings show that relationships between corporate governance and audit fees can change substantially when differences among individual companies and changes over time are taken into account.
Why Do Audit Fees Matter?
Audit fees are payments made by companies to external auditors for examining their financial statements. The amount can reflect the auditor’s workload, the complexity of the company, audit risk, and the company’s need for assurance services.
The financial sector has characteristics that make auditing particularly important. Financial firms operate with complex financial structures, face extensive regulation, and can create broader consequences for investors and other stakeholders when financial reporting problems occur.
In practice, there is no uniform audit-fee tariff for every company. Audit fees can differ significantly between companies and may also change from one year to another.
Lia Muliani, Roza Mulyadi, and Sabaruddinsah therefore examined several factors that have traditionally been associated with audit fees. These included the number of internal audit personnel, board independence, audit committee activity, firm size, firm risk, and firm complexity.
Study Examines 59 Companies Over Five Years
The researchers used secondary data from annual reports and financial statements of financial-sector companies listed on the Indonesia Stock Exchange.
An initial screening identified 97 companies that consistently published annual reports between 2020 and 2024. However, 38 companies were excluded because they did not disclose their audit fees. The final sample consisted of 59 companies.
With five years of observations, the study produced a balanced panel of 295 firm-year observations.
The researchers compared several statistical approaches. The analysis began with conventional pooled ordinary least squares (OLS) and was then extended using year effects, firm-clustered standard errors, random-intercept estimation, firm fixed effects, and correlated random-effects, also known as the Mundlak approach.
These methods were used to determine whether the findings reflected differences between companies or actual changes occurring within the same company over time.
Initial Results Link Governance to Audit Fees
The conventional OLS analysis identified positive relationships between audit fees and three factors.
These factors were:
the number of internal audit personnel;
audit committee activity; and
firm size.
In the initial analysis, companies with more internal audit personnel, more active audit committees, and larger asset sizes tended to report higher audit fees.
However, the results changed after persistent firm characteristics and within-firm dependence were taken into account.
Under the model considered most appropriate by the researchers, the correlated random-effects (Mundlak) model, none of the six main variables was statistically significant at the 5 percent level.
This finding indicates that relationships observed in a simple analysis do not necessarily represent changes occurring within individual companies.
Firm Size Remains the Strongest Factor
Although the relationships for several variables changed after panel-data adjustments, firm size remained positively associated with audit fees across the main models.
In the researchers’ preferred model, the coefficient for firm size was 0.233 with a p-value of 0.058. The result was considered marginal, but the direction of the relationship remained positive.
In simple terms, when a company’s assets increase, its audit fee tends to increase as well. However, the effect of changes in firm size from year to year was smaller than the relationship observed when comparing different companies.
This result is reasonable because larger companies generally have more transactions, more complex reporting systems, and broader operations, all of which can increase the scope of audit work.
Corporate Governance Does Not Automatically Determine Audit Fees
The study also provides an important qualification regarding corporate governance and audit fees.
The number of internal audit personnel did not show a strong relationship with changes in audit fees after persistent company characteristics were controlled for. The researchers noted that the number of internal audit employees does not necessarily represent the quality of an internal audit function.
Employee numbers do not directly capture competence, budget, risk-based audit coverage, or the extent to which external auditors rely on internal audit work.
A similar pattern was found for board independence. The proportion of independent commissioners did not show a statistically significant relationship with audit fees in the preferred model.
Audit committee activity also illustrates why panel-data adjustments matter. The initial analysis found a positive relationship between the number of audit committee meetings and audit fees. However, that relationship was no longer statistically significant after accounting for company-specific characteristics and within-firm dependence.
In other words, an increase in the number of audit committee meetings within the same company from one year to another was not consistently accompanied by an increase in audit fees.
Risk and Company Complexity Show No Consistent Relationship
The study also examined firm risk using the ratio of total liabilities to total assets. This variable did not show a consistent relationship with audit fees.
According to the researchers, the leverage ratio needs to be interpreted carefully because liabilities are an inherent part of many financial-sector business models. A high liability ratio does not necessarily indicate financial distress.
The number of subsidiaries, which was used as a proxy for firm complexity, also failed to show a significant relationship with audit fees after company-specific characteristics were controlled for.
The researchers noted that subsidiary counts provide only a simple measure of complexity. The measure does not distinguish between subsidiaries based on their size, location, business activities, or consolidation difficulties.
Implications for Companies and Auditors
The findings by Lia Muliani, Roza Mulyadi, and Sabaruddinsah offer important implications for companies, audit committees, auditors, and researchers.
Companies should not rely solely on the number of audit committee meetings, the proportion of independent commissioners, or the number of internal audit employees when estimating or evaluating audit fees.
Audit-fee decisions should consider broader factors, including the complexity of reporting systems, transaction types, regulatory requirements, specialist needs, and the risks faced by auditors.
For researchers, the study highlights the importance of using panel-data methods when the same companies are observed repeatedly over several years. An analysis that ignores persistent differences between companies can produce conclusions that differ from those obtained after controlling for firm-specific characteristics.
Sabaruddinsah and his colleagues emphasize that the findings represent conditional associations rather than evidence of cause and effect. The study also has a disclosure-related limitation because audit-fee disclosure is voluntary, meaning companies that did not disclose their fees were excluded from the sample.
Authors’ Profiles
Lia Muliani — Department of Accounting, Faculty of Economics and Business, Universitas Sultan Ageng Tirtayasa.
Roza Mulyadi — Department of Accounting, Faculty of Economics and Business, Universitas Sultan Ageng Tirtayasa.
Sabaruddinsah — Department of Accounting, Faculty of Economics and Business, Universitas Sultan Ageng Tirtayasa. Sabaruddinsah is listed as the corresponding author of the article.
The academic degrees of the authors were not provided in the source manuscript.
Research Source
Title: Governance, Firm Characteristics, and Audit Fees: Panel Evidence from Indonesian Financial Firms
Authors: Lia Muliani, Roza Mulyadi, Sabaruddinsah
Affiliation: Department of Accounting, Faculty of Economics and Business, Universitas Sultan Ageng Tirtayasa
Journal: International Journal of Management and Business Intelligence (IJMBI)
Year: 2026
DOI: https://doi.org/10.59890/ijmbi.v4i4.32
Journal URL: https://journalijmbi.my.id/index.php/ijmbi
Keywords: Audit Fees, Audit Committee, Board Independence, Internal Audit, Firm Size, Panel Data, Financial Firms
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